How the Payment Facilitator (PayFac) Model Can Help Merchants

Is your business ready to start accepting electronic payments? If so, you may be a bit confused about what your next step should be. A lot of it comes down to the terminology. For example, a payment processor and a payment facilitator can seem like the same thing, but there are some crucial differences between them.


If you’re not sure what a payment facilitator is and how it can help your business, read on!


What Is a Payment Facilitator?


When you want to start accepting online payments, you’ll first need to choose your merchant account. These accounts come in two main types: PSP and ISO. If you process less than a million transactions annually, you’re best off opting for a PSP merchant account.


The main issue with PSP merchant accounts is that obtaining one can take weeks. This is where payment facilitators come in, as they provide PSP accounts in a much shorter time frame. All you need to do is fill in an application, and as soon as you’re evaluated by an underwriter, you’ll get approved as a sub under the master merchant account.


The Payment Facilitator Ecosystem


Other than the payment facilitator itself, the PayFac ecosystem contains several other key players. Here’s a quick list:


• Sub-merchants: The sub-merchant is a payment facilitator’s customer that’s onboarded by the PayFac to start accepting electronic payments. Sub-merchants can be online businesses accepting card-not-present transactions or physical storefronts accepting card-present transactions.


• Acquiring Banks: Before it gets up and running, a PayFac must come to an agreement with an acquiring bank. The bank is responsible for making sure that the payment facilitator remains compliant and onboards sub-merchants responsibly. The bank also receives the money and data from the card networks and passes them to the payment facilitator.


• Payment Processors: The role of a payment processor is to settle the transactions initiated by PayFac’s sub-merchants. When a consumer tries to use a card to pay for their purchase, the processor receives the request and sends it to the card network. Once the network sends the authorization response, the transaction can be completed.


• Sponsors: A sponsor refers to an entity that enables a PayFac’s entry into the payment system. The acquiring bank and processor are often collectively referred to as the sponsor.


The Advantages of the PayFac Model


The PayFac model comes with plenty of benefits for merchants. It provides instant onboarding, know-your-customer (KYC) reporting capabilities, and automated sub-merchant management. It also allows you to access things like sub-merchant statements, sub-merchant accounting, and reconciliation reporting.


A PayFac model comes with a flat fee structure and gives you the ability to receive more money from transactional and network fees. It also gives you a chance to float a larger amount of payments for a longer time, which can be a huge help with managing your cash flow.

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